Private players seek productive sector-friendly monetary policy

Private sector has sought productive sector-friendly monetary policy to keep momentum of high economic growth of around seven per cent projected for this fiscal.

Speaking in a programme organised by the Nepal Rastra Bank (NRB) — the central regulatory and monetary authority — to collect suggestions for the Monetary Policy 2017-18, Shekhar Golchha, senior vice president of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), said that volatile interest rate of the banks and financial institutions has been adversely affecting the growth of productive sector. “How can investors be assured of viability of business in the current scenario?” questioned Golchha, citing that interest rates in credit has doubled over the last five months. “The central bank must ensure stable interest rate through monetary policy to improve the investment climate, through which we can achieve the desired growth target.”

Golchha also urged the central bank to defer the provision of consortium financing for the loan of above Rs 500 million by at least another one year as ‘the interest rate of loans will go up further along with rise in debt servicing charge of the bank’.

As per the central bank’s instruction, loans amounting to Rs 500 million and above will be issued on consortium basis and borrowers who have already taken loan of the said amount will have to convert their loans to consortium financing within this fiscal. Golchha also said that the new monetary policy should ensure that traders stand to benefit from the provision of South Asian Free Trade Agreement (SAFTA), which allows any mode of payment like draft and telegraphic transfer (TT) while importing goods. Presenting suggestions from the FNCCI, Saurabh Jyoti, chair of Banking Committee of the federation, urged the central bank to introduce floating and fixed interest rates, which would be applicable based on the nature of the business. He cited the example of hydropower projects, which have fixed income, and cannot be viable when interest rates are volatile.

He also expressed concerns about the difficulties facing the automobile market after the central bank fixed 50 per cent loan-to-value ratio for automobiles. “The government’s revenue from automobile sector is expected to decline by 60 per cent in this fiscal after the NRB introduced provision of 50 per cent down payment to obtain auto loans through mid-term review of monetary policy,” said Jyoti. He also urged the central bank to introduce the online payment gateway in a bid to promote e-commerce.Similarly, the Confederation of Nepalese Industries (CNI) has sought continuation in current provision of credit to core capital cum deposit (CCD) ratio calculation for next one year. To address the situation of credit crunch, the mid-term review of the monetary policy allowed banks to deduct 50 per cent of the credit floated to the productive sector while calculating the CCD ratio by end of this fiscal.

“While the interest rate in credit has been increasing unexpectedly since second quarter of this fiscal, the credit situation is unlikely to be resolved soon as the deposit collection of the banks and the remittance growth has plummeted, and government spending is still slow,” said Anal Raj Bhattarai, representative of CNI.

Nepal Chamber of Commerce (NCC), another private sector umbrella body, sought flexible monetary policy that can serve the credit demand of the economy to achieve the growth target of 7.2 per cent, envisioned by the fiscal budget.

Kamalesh Kumar Agrawal, general secretary of the NCC, presented the assumption that at least Rs 350 billion credit expansion in private sector could deliver the desired growth target in next fiscal. NCC also sought facilitation on external commercial borrowing (ECB) to utilise cheaper credit from foreign lending entities. “The monetary policy for next fiscal should open the ECB,” said Agrawal.

In the programme, Nepal Bankers’ Association (NBA) urged raising the lending cap in home loan from Rs 10 million to Rs 20 million. Citing the recent direction of the NRB to commercial banks to expand their branch network at each local unit, Gyanendra Dhungana, vice president of NBA, urged the central bank to allow banks to count the cash in vault in the branches of remote areas as its cash reserve ratio. Meanwhile, development bankers requested the central bank to allow development banks to expand their working areas. They have asked the NRB to allow development banks working in three districts to expand to 10 districts and those working in 10 districts to expand to 25 districts from next fiscal, in line with their increased capability along with rise in paid-up capital.

Likewise, Microfinance Association Nepal requested the central bank to scrap the provision of two per cent direct lending from the commercial banks to the deprived sector. They have requested the central bank to give them the option of working with other microfinance companies to meet their deprived sector lending target given by the central bank. Addressing the programme, NRB Governor Chiranjibi Nepal said that lowering the spread rate (difference between deposit and lending rate) and consolidation of the financial institutions is the priority of the central bank and pledged to give due priority for the valid suggestions put forth by the private sector while formulating the new monetary policy.